When meal kit delivery services first emerged in Sweden back in 2007, the premise seemed simple enough: offer busy customers the chance to save a lot of time, have access to a wide variety of food choices, eat healthily, improve their cooking skills, and limit the amount of food waste. In the decade since, meal kits have largely delivered on their profitable potential as companies emerged to bring easy-to-prepare meals to doorsteps around the world, including expansion into several more European nations (Germany, Austria, the Netherlands, Belgium, and the United Kingdom) and at least three more continents (Asia, Australia, and North America).

Shortly after reaching America more than five years ago, market research firm Packaged Facts estimated meal kits had become a fast growing billion-dollar business in the U.S. Since then, time has tempered both growth and expectations for meal kits though the future remains promising. Meal Kits: Trend and Opportunities in the U.S., 3rd Edition, a brand new report by Packaged Facts, forecasts the industry will continue to expand and grow healthily through 2023—albeit at rates more modest than previously anticipated.

Packaged Facts estimates the U.S. meal kit market had sales of $2.6 billion in 2017 and will grow almost 22% by the end of 2018 to reach $3.1 billion. Growth is forecast to steadily decline from double-digit gains over the next few years to single-digit gains by 2023.

Long-term, Packaged Facts concludes that as more traditional stores offer meal kits as a product rather than as a service, the market will stabilize and become similar to other convenience grocery items that sell for a premium, such as pre-cut fresh produce that is ready-to-eat.

Packaged Facts anticipates that the market for subscription meal kit delivery services will mature rapidly as other methods of meal kit sales become available and even preferred, such as one-time online orders from a meal kit website or app, online orders from a grocery store website or app, and in-store sales. As a result, future growth in the market will require industry leaders to continue pivoting and adjusting their business models to retain current customers and reach new clientele. Long-term, Packaged Facts concludes that as more traditional stores offer meal kits as a product rather than as a service, the market will stabilize and become similar to other convenience grocery items that sell for a premium, such as pre-cut fresh produce that is ready-to-eat.

“The meal kit market is highly dynamic and prone to fluctuations, with the top meal kit providers falling in and out of favor since their introduction in the past few years,” says David Sprinkle, research director for Packaged Facts. “Further complicating things, market expansion is expected to be much more reliant on alternative purchase venues than the traditional subscription delivery model due in part to the convenience and flexibility of online shopping.”

The advent of online grocery shopping has made customers more comfortable than ever with ordering fresh food online and has contributed to the expansion of the online market for meal kits. However, the problem for traditional subscription model is that the “on-demand” nature of online shopping through companies such as Amazon and the evolution of e-commerce over the past few years has led to consumers expecting convenience and near-instant gratification.

The subscriptions most meal kit delivery services provide often clash with the “on-demand” mentality of potential meal kit customers, who want to be able to buy the products they want whenever they want. Subscriptions attempt to entice more purchases and even when flexible, can lead to customers purchasing more than they want to buy at a given time to avoid increased fees. People who have felt these pressures are more likely to cancel their subscriptions, and many consumers never become customers because they do not like the idea of being “locked in” by a subscription.

“It is unsurprising that many meal kit companies have been struggling to attract new customers and maintain existing ones under the subscription model. Paired with the retention problem is the struggle with attaining profitability due to the high costs of shipping fresh ingredients directly to consumers,” says Sprinkle. “These challenges demand that meal kit companies tweak their business models and find alternative ways to reach customers, as the potential market for meal kits as a product is much larger than the interest in meal kit delivery services as they currently exist.”

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Posted by members of the Shop! Team and editorial staff of Retail Environments magazine.

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